In Richard Bettencourt’s most recent video, the Government Affairs Committee chair for NAMB–The Association of Mortgage Professionals discussed the Consumer Financial Protection Bureau (CFPB)’s recent release of the “Know Before You Owe” mortgage document simplification. Bettencourt was kind enough to take some time out of his busy schedule to discuss the CFPB’s latest mandate to impact the mortgage industry, as well as the relatively lukewarm reception “Know Before You Owe” has received from the industry.
Camden Fine voiced his concern over the new ruling, and the general consensus has been pretty middle-of-the-road in response to the CFPB’s “Know Before You Owe” mandate. What are the positive aspects for the industry?
This is a preliminary feeling on this particular rule, there are 1,300 or so pages of this thing, and we’ve only had it less than a week. There is still 21 months of timeframe under the regulatory authority that the CFPB can still make changes if necessary, but speaking from a broker’s standpoint, I feel somewhat positive about the rule. I think that if our interpretations hold true, I believe that the Loan Estimate forms between the broker and the creditor at the consummation of a mortgage will look the same. Our initial assessment right now indicates that the CFPB has utilized it's exemption authority under Dodd-Frank and is now excluding Creditor to Broker Compensation from the new Loan Estimate Form. So, from a broker’s perspective, this is very encouraging. It’ll be good to look at two loan estimates and pretty much be able to compare apples to apples, oranges to oranges.
How well do you think industry vets will adapt to this new rule?
I think the adaptation process will be fairly short. It’s a terminology thing. The initial pages of the Final Rule make notation that you’re allowed to use additional means to estimate charges prior to an application as long as you implement disclosures at consummation. I think borrowers and creditors will have something else to define the expenses in connection to the deal. That, coupled with the way the new forms look, it shouldn't be that difficult. I think people will catch on pretty quick. I think consumers will like the way the form reads. If a consumer likes it, it’ll be easier for a mortgage professional to explain what the consumer is getting into.
Many credit unions have been voicing their concerns. How do you get a small credit union to fall under compliance when they operate with limited resources?
That’s a great question. I don’t work with a lot of credit unions. They have a carve out under the qualified mortgage, assets under $2 billion per year and less than 500 loan transactions annually exempts them from Dodd-Frank Act rulings,and as far as this process goes, I personally don’t know where the additional expense would be from an implementation standpoint. It’s obvious at recent hearings that a lot of the credit unions are concerned. I don’t have enough information to see what those costs would be to stay in compliance.
During the government shutdown, there were issues related to 4506 forms not getting processed, thus slowing down the homeownership process. What happens if another shutdown occurs and the CFPB can’t issue this new document?
My initial estimate would be that a government shutdown would delay a real estate closing due to lender requirements to obtain tax transcripts and Social Security validation. The closing disclosure won’t come from a government entity, it’ll come from a title company or attorney who puts the closing package together. A shutdown would affect the mortgage process in general. Based on what I’m seeing, it shouldn’t affect the actual closing process or the disclosure forms. Also, during the most recent shut down, the CFPB was operating without any issues.[M3]
The ACU form doesn’t include cost of title insurance or other closing costs. Do you see a problem with that, moving forward?
There’s a section for title charges on the new form. Based on my interpretation, it’ll show up under the section of what the borrower can shop for. What I’ve heard from ALTA [American Land Title Association], there’s no mandatory requirement to quote title insurance. To be honest, I don’t know a mortgage professional who doesn’t suggest to their clients to get a borrower’s title insurance policy. You’re making a large real estate transaction, so it makes sense. It’s smart money. We’re required to quote it now, and I’ll continue to quote it. Mortgage brokers often are providing a substantial lender credit to their consumer. If it’s free, why not make an effort for your borrower to highlight it? They’d potentially be getting the insurance for free. I do see ALTA’s concern, though. It could cause some difficulty down the line. That would be problematic.
How does “Know Before You Owe” affect QM?
We’re not exactly sure yet. With the QM’s Jan. 10 implementation date on the horizon, we don’t see at this point in time the correlation as to how this particular form will affect that. I do like seeing the simplification of the process, though. I don’t know what sort of impact, whether positive or negative, that “Know Before You Owe” will have on QM. It’s a good question and that’s something we’ll have to pay attention to moving forward.
Increased education is obviously an important aspect of this new disclosure. What is NAMB’s stance on educating the public about this?
Right now, we’re working loosely with the Realtor community. NAR [National Association of Realtors] has been very friendly with NAMB over the past five or six years due to the issues we have faced together due to the financial crisis. Education regarding this new disclosure process is important to us. NAR is concerned about the three-day “cooling off” process of the deal, so I understand that being an issue. I can see there being some give or take in the form, and if that’s going to happen, it’ll be during that “cooling off” period, if I could guess. We want to be as aggressive as we can by educating our real estate agents and consumers so they understand that they need to be forthright with us in order to meet the QM guidelines. This will allow all of the parties involved in the closing process to ensure all expenses in connection with the closing are accurate. That way, fees won’t change, and that three-day “cooling off” period won’t be an issue. We’re proud to be working with our NAR brethren.
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